Taxes on Lump Sum Payments
If you elect to receive a withdrawal (refund) of your retirement account, NPERS is
required to withhold Federal income tax at the rate of 20% of the taxable portion of
your refund unless the taxable portion is transferred directly to an IRA or another
qualified plan. In addition, if you are a resident of the State of Nebraska, NPERS is required
to withhold 5% for State income tax.
A Form 1099R will be sent by January 31 following the year a refund was paid. The
Form 1099R gives a breakdown of the taxable and nontaxable portions of the refund
and the amount of income tax withheld. NPERS sends a copy to the IRS.
Due to the Federal Tax Reform Act of 1986, some refunds may be assessed a 10% federal
tax penalty and a 3% Nebraska tax penalty for early withdrawal. Questions regarding this penalty should be directed to a qualified tax
consultant, the Internal Revenue Service, or the
Nebraska Department of Revenue.
For more information, please read the section titled "IRS Tax Information".
Completing the Application for Refund
ALL information on the application must be completed in full in order to be processed
for payment. Please use black ink to complete the application.
This form MUST BE NOTARIZED.
"Employment in Nebraska Public Schools" these dates include all employment in
Nebraska Public Schools (excluding Omaha Public Schools). If you are uncertain of
this information, please contact the school in which you last worked.
"Selection of Member Options"
- Option One - Withdraw the entire account (your contributions plus accumulated
interest) as lump sum payment to you. Federal income tax will be withheld at 20% and State income tax at 5%;
in addition, the IRS and State of Nebraska may assess early withdrawal penalties at the time you file your taxes.
- Option Two - A transfer of the taxable portion of account directly to another
qualified plan or an Individual Retirement Account (IRA) with the after tax
portion refunded to you. Please check with your financial institution if they
are qualified under IRS guidelines.
- Option Three - A transfer of a percentage of the taxable portion of the
account directly to another qualified plan or an IRA with the remainder refunded
to you. Federal income tax will be withheld at 20% and State income tax at 5%;
in addition, the IRS and State of Nebraska may assess early withdrawal penalties at the time you file your taxes.
If you select either option two or option three, you must include either a transfer
form or a Direct Rollover form from the institution to which you are transferring the
funds to. Please contact the Transfer Company for the appropriate form and submit it
with the application.
"Institution OR Trustee" you must provide NPERS with the name and mailing address of
the company to which you wish your funds to be transferred in addition to the transfer
form from the company. This is the information that will be printed on the warrant.
IMPORTANT NOTICE: If you return to work the following school year with any school
district under the plan, you will be required to repay this refund.
Frequently Asked Questions
If I decide to take a
refund, what are my payment options?
Are there any
penalties for withdrawal?
Can I elect to not
have federal taxes withheld?
If I choose a Direct
Rollover, do I still have to pay taxes or a penalty?
I want to request a
direct rollover of my account. What types of account can I roll
the money over to?
Since my refund does not include the school contributions,
what happens to that money?
When can I apply for a refund?
When will I receive my refund?
After I turn in my
paperwork, then what happens?
Can I only take out
part of my account and leave the balance with Retirement Systems?
Are there any
benefits to leaving my account with the School Retirement Systems?
What is the interest
rate my account is earning?
When is interest
posted to my account?
What happens if I
return to work in a public school?
I am leaving one
school to take a job at another school, can I receive a refund of
my account?
I am now working in
another state, what do I do to transfer my account to the state I
am presently working in?
I want to cancel my
refund, how do I go about doing this?
I have changed my
address. What do I do?
After I receive my
refund, will I receive any additional paperwork from Retirement
Systems regarding taxes?
If I decide to take a
refund, what are my payment options?
You have three options. You may:
(1) Receive a refund of entire account,
or
(2) Rollover the entire account directly to another qualified plan
or an IRA, or
(3) Rollover a percentage of the account directly to another qualified
plan or an IRA, with the remainder refunded to you.
Are there any penalties
for withdrawal?
If you take a lump sum payment, NPERS is required to withhold 20% of the taxable portion for federal income
tax and 5% for Nebraska income tax. In addition, if you have not reached age 59 ½, you may also be subject to a 10%
federal and 3% state penalty for early withdrawal of a retirement account. This penalty is assessed at the time you file your taxes.
Can I elect to not
have federal taxes withheld?
No, we are required by law to withhold
federal income tax from all refunds.
If I choose a Direct
Rollover of the entire account, do I have to pay taxes or a penalty?
No, by choosing a direct rollover you
eliminate the federal and state income tax withholding and the penalties
for early withdrawal.
I want to request a direct rollover of my account.
What types of account can I roll the money over to?
The Nebraska School Retirement System
is a qualified retirement plan under 414 (h). Please check with
the receiving institution to be sure the account or plan is
qualified to receive transfers from our plan.
Since my refund does not include the school contributions,
what happens to that money?
The school contributions are used to fund the system for those members
who take a monthly (lifetime) annuity. You forfeit these contributions
when you take a refund.
When can I apply for a refund?
Per statute, you are eligible to apply for a refund no earlier than four months
after your termination of employment.
When will I receive my refund?
Refunds are processed twice each month. Most refund checks are issued within 3
to 4 weeks provided the initial four-month period since termination has elasped, NPERS has received
the properly completed paperwork from the member, and the Non-Contributing Member form
(verification of termination) from the school.
After I turn in my paperwork, then what happens?
Once we have received your Application for a Refund/Refund Election form, we will
review your application and notify you only if we are in need of additional
information.
Can I only take out
part of my account and leave the balance with Retirement Systems?
No, we are not allowed by law to make
partial refunds.
Are there any
benefits to leaving my account (deferral) with the School Retirement Systems?
The School retirement plan provides a lifetime annuity for members who have
accumulated at least 5 years of service and reached retirement age, or members
who cease employment on or after age 65 with at least 1/2 a year of service credit.
If you cease employment with 5 or more years of service, you may defer applying for
your benefit until you reach retirement age. If you take a refund, you lose your
retirement benefit.
NPERS encourages members with 5 or more years of service to carefully consider the
consequences of taking a refund. Members with less than 5 years of service should also
consider deferring their account if they plan on returning
to employment in the Nebraska public school system (with the exception of Omaha
Public Schools). Members who do not take a refund and later return to employment with
a Nebraska public school will have their previous service included
when NPERS calculates the amount of their benefit at retirement.
NOTE: Please refer to the School
Plan Booklet for additional details on retirement ages and benefit eligibility.
What is the interest
rate my account is earning?
Per statute, the interest rate is fixed at a rate equal to the daily
treasury yield curve for one-year treasury securities as published by the
Secretary of the Treasury of the United States, that applies on July 1st of
each year. You may contact NPERS
for the current interest rate.
When is interest
posted to my account?
Interest is posted monthly.
What happens if I return to work in a Nebraska public school?
If you return to employment in any Nebraska public school (with the exception of
Omaha Public Schools) within 180 days, you will be required to repay the refund and
resume participation in the plan. If you are re-employed in a Nebraska public school
after filing an Application for Refund but prior to actually receiving the refund,
you must notify NPERS immediately. You are no longer eligible to receive the refund.
In addition, you should refile a Beneficiary Designation form, since the Application
for Refund cancels any previous beneficiary designations.
If you return to work in a public school after 180 days, you may keep the refund
but this will erase your prior service credit. You have the option to repay all or a portion
of the refund in order to restore lost service. You will rejoin the plan as a new
member, but will retain your original retirement account number. In addition, you
should complete a new Beneficiary Designation form to reestablish your beneficiaries.
I am leaving one school to take a job at another Nebraska Public
School, can I receive a refund of my account?
No, our plan covers all Nebraska Public Schools with the exception of Omaha Public
Schools. When you leave one school to take a position with another, you are
still a member of our Retirement System.
I am now working in
another state, what do I do to transfer my account to the state I
am presently working in?
We recommend that you discuss this
matter with the retirement system of the state that you are
currently employed with.
I want to cancel my
refund, how do I go about doing this?
Please notify us immediately. We do
require written confirmation of this request.
I have changed my
address. What do I do?
Please notify us in writing
immediately. Failing to notify us of an address change may delay
your refund. Please include your social security number and
account number with any correspondence.
After I receive my
refund, will I receive any additional paperwork from Retirement
Systems regarding taxes?
You will receive a Form 1099-R form by
January 31 of the following year. This form should be kept for
filing with your income tax. The Form 1099-R form gives a
breakdown of the taxable and nontaxable portions of the refund
and the amount of income tax withheld. The same information is
sent to the Internal Revenue Service by this office.
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